There has recently been a push among some members of the international arbitration community to make the application of so-called “soft law”, such as the IBA Guidelines on Conflicts of Interest in International Arbitration (the IBA Guidelines), standard practice in international arbitration.1 In this context, W Ltd v M Sdn Bhd [2016] EWHC 422 (Comm) is important. First, it confirms the position of the English courts towards the IBA Guidelines (ie that they are not legally binding) and, secondly, it highlights certain “weaknesses” of the IBA Guidelines.
The IBA Guidelines
The IBA Guidelines contain general standards designed to ensure the impartiality and independence of arbitrators in international arbitration. These include the requirement to disclose certain circumstances upon appointment (or as soon as possible thereafter) if they exist.2 A list of circumstances is included in the Guidelines and coded by colour (red, orange and green).
This case concerned the non-disclosure of a circumstance listed on the Red List. The Red List consists of: (i) “a Non-Waivable Red List” and (ii) “a Waivable Red List”. The IBA Guidelines explain that “[t]hese lists are non-exhaustive and detail specific situations that, depending on the facts of a given case, give rise to justifiable doubts as to the arbitrator’s impartiality and independence.”3 That is “in the circumstances, an objective conflict of interest exists from the point of view of a reasonable third person having knowledge of the relevant facts of the case.”4
If any Non Waivable Red List conditions exist, an arbitrator should not accept an appointment.5 Waivable Red List conditions are also serious, but not as severe, and can be waived by the parties (albeit only expressly).
Facts – arbitrator’s firm advising affiliate of defendant
W Ltd v M Sdn Bhd concerned the application by the claimant, W Ltd, to challenge two arbitral awards before the English courts under s68 of the Arbitration Act 1996 (the Act). W Ltd argued that there had been “serious irregularity affecting the tribunal” because the sole arbitrator responsible for the awards had failed to disclose circumstances that fell within the Non-Waivable Red List of the IBA Guidelines, rendering him apparently partial .
The sole arbitrator was Mr Haigh QC, a Canadian lawyer. There was no suggestion of actual bias on his behalf, or of actual absence of impartiality or independence. The challenge was based on apparent bias from an alleged conflict of interest. Specifically, it was established that the law firm of which Mr Haigh QC was a partner regularly advised an affiliate of the defendant (the Company), and had earned significant remuneration for that work.
Mr Haigh QC himself had never done any work for the Company. He operated effectively as a sole practitioner, only using his firm for the secretarial and administrative assistance of his work as an arbitrator. Nevertheless, under the IBA Guidelines, his firm’s work for the Company was something he should have disclosed. Paragraph 1.4 of the Non-Waivable Red List of the IBA Guidelines includes as a condition to be disclosed circumstances in which “[t]he arbitrator or his or her firm regularly advises the party, or an affiliate of the party, and the arbitrator or his or her firm derives significant income therefrom.”
The conflict checks carried out by Mr Haigh QC had not picked up the relationship between the Company and the defendant.
Judge rejects bias arguments
Knowles J unhesitatingly rejected the claimant’s application.
While he noted that the IBA Guidelines could be, and had been, of assistance in assessing challenges under s68 (the Act), that was the extent of their value.6 He confirmed that the IBA Guidelines are not binding on the English courts. The relevant test for apparent bias under English law is whether “a fair minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased”.7 In Yiacoub v The Queen [2014] UKPC 22, “bias” was further explained to “mean an absence of demonstrated independence or impartiality.”8
Knowles J concluded that a fair minded and informed observer would not conclude that there was a real possibility that the arbitrator was biased, or lacked independence or impartiality.9
“Weaknesses” in IBA Guidelines
As noted above, Knowles J also referred to certain “weaknesses” in the IBA Guidelines.10 Specifically, Knowles J suggested that it was problematic to treat “compendiously (a) the arbitrator and his or her firm and (b) a party and any affiliate of the party, in the context of the provision of regular advice from which significant financial income is derived.”11 Linked to this, he questioned “this treatment occurring without reference to the question whether the particular facts could realistically have any effect on impartiality or independence (including where the facts were not known to the arbitrator).”12
Knowles J noted that the Red List conditions are stated to give rise to doubts about impartiality depending on the “facts of a given case.”13 That did not, however, overcome the difficulty. That was because “Paragraph 1 of Part II of the IBA Guidelines states that, ‘[i]n all cases’, it is the General Standards ‘that should control the outcome’.”14 And “General Standard 2(d) states, without qualification, that justifiable doubts ‘necessarily exist’ as to the arbitrator’s impartiality or independence, ‘in any of the situations described in the Non Waivable Red List.’”15
COMMENT
The scope of paragraph 1.4 of the Non-Waivable Red List was expanded in the 2014 version of the IBA Guidelines. Under the previous (2004) version, only regular advice given to the affiliate of a party directly by the arbitrator needed to be disclosed, as opposed to such advice given by the arbitrator’s law firm. Also under the 2004 version, justifiable doubts as to the arbitrator’s impartiality and independence were held to exist in a much more limited set of circumstances (as opposed to in every situation described in the Non-Waivable Red List).
The IBA Guidelines make an important contribution to international arbitration. However, if they purport to exclude competent, qualified and impartial arbitrators, query whether, in their current form, they extend too far in their application. In W Ltd v M Sdn Bhd, Mr Haigh QC indicated that, had he been aware of his firm’s relationship with the Company, he would have disclosed that fact.16 Applying the IBA Guidelines, he would have been required to recuse himself.
Footnotes:
1 For example, at the International Bar Association International Arbitration Day on 4 March 2016, the President of the International Chamber of Commerce International Court of Arbitration officially called upon all international arbitral institutions to endorse the Guidelines. See Global Arbitration Review, Mourre takes hard line on soft law, 7 March 2016.
2 IBA Guidelines, General Standard 3.
3 Ibid., Part II, para. 2.
4 Ibid.
5 Ibid.
6 Ibid., para. 26.
7 That test was set out by Lord Hope in Porter v Magill [2002] AC 357 at 103.
8 Per Lord Hughes, at para. 12.
9 W Ltd v M Sdn Bhd [2016] EWHC 422 (Comm), para. 22.
10 Ibid., para. 34.
11 Ibid.
12 Ibid.
13 Ibid., para. 38.
14 Ibid.
15 Ibid.
16 Ibid., 24.
